CHINA: An Introduction to Construction (PRC Firms)

A Review of Emerging Trends in 2024 Construction Legislation and Judicial Interpretations

In March 2024, delegates from courts across China discussed the long-brewing “Interpretation of Issues Concerning the Application of Law in the Trial of Cases Involving Disputes over Construction Contracts (II) (Discussion Draft)” (the “Discussion Draft”). The Discussion Draft, which has generated significant debate among industry players upon its release, introduces many changes compared to current judicial interpretations. As such, once formally promulgated, it is expected to have a substantial impact on the operations of market participants. This article highlights some noteworthy changes that warrant consideration.

Article 1 of the Discussion Draft sets forth that a labor subcontract concluded by a contractor without labor subcontractor qualification shall be valid. Generally, mandatory regulations that will invalidate a construction contract mainly concern with regulations on project quality assurance and safe construction as well as those safeguarding the orderly competition in the market. The previous provision that invalidates the labor subcontracts entered by contractors without proper qualifications is a mandatory provision set to ensure the quality of construction. However, as the Ministry of Housing and Urban-Rural Development has reformed the qualification certification, many provinces in China have repealed the labor subcontractor qualification. Consequently, the validity of a subcontract is no longer subject to such qualification. Article 2 of the same recognises that, in the case where a construction company entrusts any construction works to its branch or any individual that has established labor relationship with the construction company, such entrustment shall be deemed as the company’s internal contracting. Article 3 of the Discussion Draft provides that in the case of subcontracting works for (residential) outfitting and low-rise rural self-built residentials that do not involve any change to the main structure or the load-bearing structure of a building, the builders’ lack of qualification does not have any bearings on the validity of the contracts they enter for such works. The foregoing changes proposed in the Discussion Draft indicate a relaxation of the construction qualification requirements.

Article 5 of the Discussion Draft fills the gap in the regulations of fronting, where a builder who does not have the required qualification “borrows” other’s qualification to undertake construction works, and stipulates that the builder shall no longer be entitled to claim construction payments directly against the employer as provided under the previous construction contract judicial interpretations. Instead, the builder may only claim compensation against the contractor that lends it the qualification, except where the builder may convincingly prove that the employer is or should be aware that the qualification of the builder is “borrowed”, in which case the builder may claim a discounted contract price as compensation against the employer.

Article 6 of the Discussion Draft makes some significant alterations. Current judicial interpretations provide that, a builder may lodge a lawsuit against the employer, who shall be liable for payment for up to the total amount of construction payments it owes. After the Discussion Draft is enacted into official legislation, however, in the case of sub-subcontracting, a sub-subcontracting builder may only file lawsuits against the subcontractor that has illegally sub-subcontracted the works to it, whether the builder assumes the subcontractor’s responsibilities entirely or merely acts as the latter’s agent. In such case, the builder may no longer hold the employer liable for construction payments. This change upholds the privity of contract and refrains from overprotection of the builders. Whether a subcontractor that illegally sub-subcontracts works is entitled to management fees from the sub-subcontracting builder depends on the extent to which the subcontractor is engaged in the management of the works.

Article 7 of the Discussion Draft stipulates that, for a construction project that is not mandatorily subject to tendering, if the employer enters into a construction contract with a contractor upon negotiation and subsequently enters into another construction contract with another contractor or other entities via tendering process, both contracts shall be valid. Prior to the Discussion Draft, in judicial practice, some hold the view that the contract concluded upon negotiation may constitute pre-tendering substantive negotiation, which is in violation of the tendering law, while the inclusion of this provision in the Discussion Draft effectively resolves relevant controversy.

Article 12 of the Discussion Draft is a provision on the “back-to-back” clause, which stipulates that a party pays its counterparty upon receiving payment from a third party or in proportion to the progress payment allocated by the third party. On June 3, 2024, the SPC released the “Reply on the Effectiveness of the Clause Agreed between Large Enterprises and Small and Medium-sized Enterprises to Make a Third-Party Payment as a Prerequisite for the Payment between Them”. This reply classifies the “Regulations on Ensuring Payments to Small and Medium-sized Enterprises” as a “mandatory provision of force and effect” under Article 153(1) of the Civil Code. Consequently, the “back-to-back” clause is rendered invalid under certain conditions. In the context of financial challenges faced by many small and medium-sized enterprises (SMEs), the provision contributes to leveling the playing field between large enterprises and SMEs in their transactions. Market participants are advised to pay special attention to such regulatory changes.

Articles 14 and 15 of the Discussion Draft are on settlement in a fixed-price contract where any changes occur to costs of labor, materials, and/or design. Article 14 sets forth that, if the actual construction scope is the same as that agreed by the parties in their contract, the agreed-upon construction price shall prevail. Any material change to labor costs or prices of main construction materials shall not result in the modification of the construction price, unless such material change is deemed as a change of circumstances under the Civil Code. If a change of design occurs beyond the agreed-upon construction scope and is unattributable to the contractor, the construction price may be calculated in accordance with the calculation methods or pricing standards published by the local competent construction administration of the project. For the calculation of the price of unfinished works in a fixed-price construction project, Article 15 provides that it may be based on the pricing methods or standards published by the local competent construction administration of the project at the time when the contract is concluded or on a pro rata basis in accordance with the “Price Proportion Factor Method”. We are of the view that it is advisable to allow judges the discretion to choose between the two options when calculating construction prices. Generally, employers favor the pro rata basis, but this approach does not address the “imbalanced quotation” issue of contractors. Contractors, on the other hand, tend to prefer the pricing methods and standards released by the competent construction administration. We believe that a fair approach would be to choose between the two options based on the underlying reasons for the termination of the construction contracts.

To tackle the obstacles to accountability involved in the cases where a contract is executed or payment acknowledged by stamp of the construction department, Article 17 of the Discussion Draft specifies that the validity of such action depends on whether it falls under the doctrine of apparent agency. Article 18 confirms that contractual clauses on retention in a construction contract are enforceable after the contract is terminated.

Article 22 of the Discussion Draft clarifies that if an employer fails to make construction payments as agreed to a contractor, the contractor may exercise its priority of claims through entering into a contract for compensation from the project’s sale, and also specifies the conditions for exercising such priority. Article 26 stipulates that, if after an employer and a contractor enter into a settlement contract, the construction payment schedule is extended, the time frame for exercising the priority of claims will not be extended.

In summary, as the Discussion Draft shows legislators’ intention to prohibit practices such as fronting, sub-subcontracting as a broker without assuming any responsibility, and other forms of illegal sub-subcontracting, market participants need to exercise caution in avoiding such practices and take measures, including careful evaluations on operations like internal contracting, to adapt to the evolving regulatory landscape.

2024建设工程领域法律及司法解释新动向评述

2024年3月，全国法院代表对酝酿已久的《关于审理建设工程施工合同纠纷案件适用法律问题的解释（二）》（讨论稿）（以下简称讨论稿）进行了研讨，此《讨论稿》一经公布，受到了实务界的热议。较之现行司法解释，《讨论稿》变动内容较多。一旦正式公布，将对市场主体的经营方式产生较大的影响。

《讨论稿》第一条规定，未取得施工劳务资质的承包人订立的劳务分包合同有效。通常，导致建设工程施工合同无效的强制性规范，主要包括保障工程质量及施工安全的规范，以及维护市场公平竞争次序的规范。资质管理是保证工程质量的手段，因此未取得施工资质的承包人订立的施工合同应认定为无效。但由于住建部进行资质改革，目前全国已有多个省份取消了劳务分包资质，因此劳务资质不再影响劳务分包合同的效力。第二条认可了施工企业将工程交由其分支机构或者与其已形成劳动关系的职工施工为企业进行内部承包经营。第三条规定对于不涉及建筑主体和承重结构变动的（住宅）装修工程及农民自建低层住宅建设工程施工，即便施工主体没有资质，也不影响合同的效力。上述规定均体现了政府对工程资质要求的逐步放宽。

第五条填补了关于“挂靠”规定的空白，基于挂靠关系的实际施工人（资质借用人）无权再依据此前的施工合同司法解释规定直接向发包人主张索要工程款，只能向出借资质的承包人主张折价补偿款，除非实际施工人有充分证据证明发包人知道或者应当知道借用资质情形的，实际施工人才可以向发包人主张折价补偿款。

第六条进行了重大改动。现行司法解释规定，实际施工人可以直接起诉发包人，发包人在欠付工程款范围内承担付款责任，但是，实际施工人今后只能向有直接合同关系的转包人或者违法分包人主张工程款，不能再向发包人主张工程款。体现了坚持合同相对性，不再对实际施工人过度保护的司法倾向。对于转包人或者违法分包人应否获得管理费的问题，要看是否参与工程管理等情形。

第七条规定非必须招标的工程项目，发包人与承包人通过协商订立施工合同后，又通过招标投标程序与承包人或者他人订立施工合同，两份合同均有效。此前审判中有观点认为通过协商订立施工合同有可能构成标前实质性谈判，违反招投标法。此规定，解决了审判实践中过往的争论。

《讨论稿》第十二条规定了“背靠背条款”。之后2024年6月3日最高人民法院发布了《关于大型企业与中小企业约定以第三方支付款项为付款前提条款效力问题的批复》，将《保障中小企业款项支付条例》归入了民法典第一百五十三条第一款中的“效力性强制性规定”，从而否定了“背靠背”条款在特定条件下的效力。在很多中小企业存在资金链断裂的背景下，《批复》有助于避免大型企业与中小型企业交易中利益失衡的情形。此类规定应引起市场主体的高度重视。

《讨论稿》的第十四、十五条系关于人工材料价格变化以及设计变更情形的固定总价合同结算的规定。第十四条规定实际施工工程与约定施工范围一致，则按照约定固定总价结算工程价款。施工履行期限内人工费、主要材料价格发生重大变化，除非符合民法典规定的情势变更情形，否则不调整工程价款。非因承包人原因，超出约定的施工范围的设计变更，可以参照合同订立时建设工程所在地建设行政主管部门发布的计价方法或者计价标准结算工程价款。对于固定总价合同未完工工程的结算，第十五条规定可以参照合同签订时建设工程所在地建设行政主管部门发布的计价方法、计价标准或者按照“价款比例系数法”即比例法。我们认为两种方法供审判法官选择较为合理。通常发包人更倾向于比例法，但无法解决承包人的“不平衡报价”问题。承包人通常倾向于建设行政主管部门发布的计价方法、计价标准。我们认为根据施工合同解除的原因进行选择，更能体现公平。

对于实践中以项目部印章等对外订立合同或者确认款项，如何确认责任的疑难问题，第十七条明确，按是否构成“表见代理”进行认定。对于施工合同解除后，预留质量保证金的约定是否进行执行，第十八条确认应予执行。

对于建设工程优先权的行使方式，第二十二条明确了可以以折价补偿协议的形式行使，且明确了行使条件。对于建设工程优先权的行使期限，第二十六条明确了发包人与承包人订立结算协议后，如再延长支付工程价款的日期，不延长优先权的行使期限。

鉴于《讨论稿》中体现的诸如对挂靠、转包或者违法分包的否定性评价，市场主体应杜绝此类情形，对包括内部承包等经营方式认真研究，以应对环境的变化。